New Construction Has Already Impacted Vacancy Rates

By Greg Johnson

Rampant apartment construction is driving up vacancy rates, and everyone is going to be affected in 2016. How can a new 300-unit property targeting $2,000 rents near Coors Field impact a 12-unit building on Capitol Hill with $950 rents? Easy – leasing troubles know no geographic boundaries.

It’s important to understand the Denver rental market has been fluid for decades. Vacancy rates are not insulated or isolated by neighborhood. When they move, they move together – across the entire metro Denver area. We have collected nearly 20 years’ worth of data, and the chart below displays the synchronous nature of vacancy rates between Central Denver, Denver County, and the metro area as a whole.

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In 2002, for example, when new construction in Douglas County pushed up the vacancy rate of Metro Denver, Central Denver rose too – at the exact same time. And when the popularity of Central Denver drove down local vacancy rates below 3% in 2011 and 2012, vacancy across Metro Denver fell too.

With 20,000 more apartments currently under construction, Denver Metro vacancy rates are expected to approach 10% this year. And as they climb, Central Denver owners will see leasing traffic slow down, vacancies increase, and rents soften. We’re all in this together!

How could vacancy possibly approach 10% this year? 

If 12,000 units are completed in 2016, and we add 2,000 new renters (more than double the amount added in 2015), the metro-wide vacancy rate would be 9.65%.  And if we only add the same number of new renters in 2016 that we did in 2015, the vacancy rate would be 10.0%.

One response to “New Construction Has Already Impacted Vacancy Rates

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